Saturday, August 21, 2010

My Take: Redbeacon’s Plans to Live Up to the Hype

Redbeacon is just a year and a half old, until recently was bootstrapped, and has deployed its local-services marketplace in only one region, but something about what it’s doing clearly makes people think the company’s on to something big. It’s won four separate startup competitions, including TechCrunch 50 and Silicon Alley Insider’s top prizes. People seem to really like the idea of using a website to find and negotiate with local service providers to clean their house or detail their car.

Redbeacon’s most recent valuation was its first outside funding: $7.4 million from Mayfield Fund and Venrock. So we invited co-founder and CEO Ethan Anderson over to our office to hear about what the company is doing to meet these lofty expectations.

Redbeacon is planning to use the funding to expand, said Anderson, by building up new regional markets and also through online distribution, via a publisher widget and formal partnerships with distributors like phone directories. He wants to build Redbeacon as a brand, while borrowing from the traditional classifieds business.

My Take:

RedBeacon seems like a LendingTree for contractors. Kind of Web 1.0 with some pasted-on testimonials. Not all that innovative.

Many players (AT&T -, Reach Local, Localeze, Google, Facebook, LikeList) are converging on the social-local space to leverage word-of-mouth referrals. Who will come up with a successful way to effectively tap the value of these trusted recommendations?

These two elements might be the keys:
1. a unique monetization model. There's so much value in the transaction itself - why not convert that to cash?
2. a unique way to benefit causes. The Web is famous for its ability to marshal the concern and financial support of people for good causes. With a creative model, the social capital of these transactions can benefit charities with a recurring source of donations.

Monday, August 16, 2010

Deriving Value From Social Networks - Open Door vs. Closed Door Approaches

Can Closed-Door Exclusive Social Networks Make Money?

Sean Carton | August 16, 2010

Excerpted from Clickz

Overall, most of us have looked at social media as a marketing tool, a way of driving traffic, building awareness, or building brand loyalty. But what if we looked at it as a way of driving revenue through access?

Social media: we all know that it’s a great marketing tool. Maybe it’s now time to start thinking about how to turn it into a revenue generating tool by making it less accessible to your audiences, not more.

My Take:
Closed door seems uncreative and Web 1.0-ish. Especially considering that marketers have yet to tap the rich potential offered by the Social Web to attach an actual dollar value to a service provided in a social transaction.

This can be done in a very "Webby" way - i.e.
- it can be done as a voluntary payment
- it can be paid after the value of the social transaction has been recognized - so it's not a "pay me now for value you may or may not get down the road" model like traditional advertising
- it can be distributed via the Web (PayPal, etc.)
- it can take brand affiliation to a new level and support affiliation with a cause (e.g. generating donations for charities)

Sunday, August 15, 2010

Academic Research: Word-of-Mouth is a Great Investment

According to a new study, "Referral Programs and Customer Value," to be published in the January issue of the American Marketing Association's Journal of Marketing, customer referral programs are indeed a financially attractive way for firms to acquire new customers.

"There's a lot of talk about word-of-mouth-marketing, and about making money out of social connections. Our first objective was to see if customer referral programs can indeed turn social capital into economic capital. Second, we wanted to come up with a methodology to assess the effectiveness of customer referral programs that was easy to implement with data and tools available to many managers."

The study tackled three questions:
•Do referred customers have higher margins than other customers?
•Do referred customers stay longer with the firm than other customers?
•Do referred customers have a higher customer lifetime value, the net present value of all the profits a customer generates over his or her entire association with the firm?

The answers, according to the study, are all positive. Referred customers were about 18 percent more likely to stay with the bank than other customers, and that gap did not fade over time.

The researchers also concluded that the difference in margin combined with the difference in customer retention amounted to a disparity in long-term customer value of 16 percent to 25 percent. "That's not only a sizable chunk of money," Van den Bulte says, "it also amounts to a 60 percent ROI over six years.

My Take:

While this study measures the profitability of word-of-mouth for large banks, the millions of small, locally-owned US businesses undoubtedly enjoy the same benefits. On top of this, most small business owners tell us that up to 80% of their new customers arrive via word-of-mouth.

Social media is poised to help these small business owners to harness word-of-mouth as a measurable and manageable part of their advertising mix. Traditional advertising media (newspaper, Yellow Pages, local broadcast) are in a tight spot. They currently receive most of small business ad budgets, yet only account for 20% of their new sales.

These traditional, local ad media will need to offer more social media functionality to remain competitive.